April 21, 2019

Tenth Circuit: District Court Lacked Jurisdiction Under FTCA and Tucker Act in FDIC Receivership Case

The Tenth Circuit Court of Appeals published its opinion in ECCO Plains, LLC. v. United States on Wednesday, September 4, 2013.

Ken Ulrich is the majority owner of High Plains Cattle Company, LLC. High Plains and Doug English formed ECCO Plains, LLC, to raise cattle for sale. Each made a $7,000,000 capital contribution to ECCO Plains. High Plains financed its capital contribution with a loan from the New Frontier Bank; Ulrich personally guaranteed the debt. English also financed his capital contribution from the Bank. No ECCO Plains assets were pledged as security for either loan. As part of the ECCO Plains operating agreement, the parties agreed that High Plains would, upon request, receive a return of its capital contribution before English received any of his capital contribution. The Bank, as well as FDIC, had a copy of the agreement. After the Bank became insolvent, FDIC was appointed receiver.

ECCO Plains sold approximately $5,500,000 worth of cattle to a packing house in Northern Colorado. FDIC caused the packing house to make the sale proceeds payable to both ECCO Plains and FDIC. High Plains made a written demand to FDIC to apply 100% of the sale proceeds to High Plains’ loan. The demand was based on its 50 percent membership interest in ECCO Plains and the terms of the ECCO Plains/English operating agreement. English, on the other hand, instructed FDIC to apply 50% of the proceeds to the High Plains loan and the other 50% to the English Cattle Company loan. FDIC, however, did neither. Instead, it applied all of the proceeds to the English Cattle Company loan. It then sold that loan, along with the High Plains loan, to third parties.

ECCO Plains, High Plains and Ulrich filed suit against the United States. All three alleged conversion and negligence under the Federal Tort Claims Act FTCA. ECCO Plains also alleged a Fifth Amendment Takings Claim. The government moved to dismiss based on lack of subject matter jurisdiction or, in the alternative, for failure to state a claim. The district judge granted the motion. He concluded ECCO Plains’ FTCA claims should be dismissed for lack of subject matter jurisdiction because it failed to file a notice of claim. The remaining claims were dismissed for failure to state a claim.

The Tenth Circuit first considered High Plains and Ulrich’s conversion and negligence claims. While those claims would be covered by the FTCA, the FTCA excludes claims arising out of interference with contract rights. The court agreed with the government that High Plains and Ulrich’s claims were actually that the FDIC interfered with their contractual right to the proceeds of the sale. Their complaint satisfied the elements of interference with contract under Colorado law and treatises in effect at the time of the FTCA’s enactment. The court held that the district court lacked subject matter jurisdiction over the conversion and negligence claims.

The court also held that ECCO Plain’s Fifth Amendment Takings claim should have been construed as an illegal exaction claim and dismissed for lack of jurisdiction. An illegal exaction claim exists when “the plaintiff has paid money over to the Government, directly or in effect, and seeks return of all or part of that sum that was improperly paid, exacted, or taken from the claimant in contravention of the Constitution, a statute, or a regulation.” Under the Tucker Act, the United States Court of Federal Claims has jurisdiction over illegal exaction claims when the exaction is based on an asserted statutory power. Here, the FDIC acted under its receivership powers to take control of the cattle sale money.

The court reversed the district court’s dismissal of High Plains and Ulrich’s negligence and conversion claims and ECCO Plains’ Fifth Amendment Takings claim for failure to state a claim and remanded to the district court to dismiss the claims for lack of jurisdiction.

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